Is GORE Spain Holdings SOCIMI I. S.A.U.'s (BME:YGRE) Balance Sheet Strong Enough To Weather A Storm?
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GORE Spain Holdings SOCIMI I. S.A.U. (BME:YGRE) is a small-cap stock with a market capitalization of €17m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Given that YGRE is not presently profitable, it’s vital to assess the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. However, this is not a comprehensive overview, so I recommend you dig deeper yourself into YGRE here.
YGRE’s Debt (And Cash Flows)
Over the past year, YGRE has reduced its debt from €57m to €23m – this includes long-term debt. With this reduction in debt, YGRE currently has €12m remaining in cash and short-term investments , ready to be used for running the business. Additionally, YGRE has produced €627k in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 2.7%, signalling that YGRE’s debt is not covered by operating cash.
Can YGRE pay its short-term liabilities?
Looking at YGRE’s €32m in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of €54m, with a current ratio of 1.68x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Real Estate companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can YGRE service its debt comfortably?
With debt reaching 68% of equity, YGRE may be thought of as relatively highly levered. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. But since YGRE is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
YGRE’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for YGRE's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research GOREin Holdings SOCIMI I.U to get a more holistic view of the small-cap by looking at:
- Valuation: What is YGRE worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether YGRE is currently mispriced by the market.
- Historical Performance: What has YGRE's returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.